Forget savings – you might just need to earn more!

This blog post is very special because it’s inspired by and written as an answer to an email I received last week from a friend and a regular reader of my blog, Madeleine from Manchester.

Immediately after I read the email I came up with a few quick answers and a few pieces of advice. 

And then I realized that giving advice is the easiest thing under the sun! We are all good at it, aren’t we? 

The problem is, often what looks to you like an easy problem to solve might mean the end of the world to someone else. Equally, what seems impossible for you might be ‘bread and butter’ for someone who sees your situation from a distance. Yes, I know, it sounds banal, but it is kind of the foundation of the matter.

So in writing this article I am answering Madeleine’s email, and, at the same time, I am saying everything I believe is relevant for anyone else in such a challenging situation. I want to make my answer both personal and public; I hope it will work.

I’ve been thinking a lot about money the past few weeks and I would actually really, really appreciate your opinion! Every text I read that you write is focused on:

– People wanting to get out of debt, or save up.

– People wanting to invest.

– People wanting to understand how to budget and stop spending more than they earn, etc.

In my case, I have a very small debt. I had a credit card that I had to get as an emergency the Christmas before last. I pay £50 per month back on it (minimum payment is £25) and my current debt on the card is £2800. I have no other loans, credit cards, mortgages, and nothing on finance. I try to live within my means and not spend money that I have not earned. There is no interest charged on my credit card until July, which is when I will try to move my balance to another 0% card. I have cut the card up and no longer use it.

Regarding savings, I have recently opened a savings account and I put £100 in it. I set up a direct debit of £50 per month, which is the maximum I can afford.

I work as a teacher 5 hours a week, I work as a support worker 25-30 hours a week, and I try my best to spend at least one full day a week writing. This is because I believe that when I finally finish these books and other projects, I will be able to make money from them. Despite working hard, my annual income is low and under this Conservative government, I am not entitled to the help with rent etc. that I was entitled to a couple of years ago, despite my income being lower than it was before. I do receive working tax credits, and the honest truth is that without working tax credits I would be homeless right now. I’m a lone parent of a teenage daughter, who does work part-time but still demands money frequently!

My outgoings are enormous, and they are all things that I have no choice but to pay. I have a budget and I update it regularly. Most bills increase every April, although my wages don’t. Currently, the cost of surviving for me with no spouse to help me cut the cost of living is £1500 per month – this is around the same amount that I receive, in wages and working tax credit. The £1500 outgoings are for gas, electric, rent, water, council tax, car insurance and tax, diesel, food, wifi, and mobile phone. I am always shopping around for the best deals, and I am on the best deals but still cannot always afford to get to the end of the month.

I have NO luxuries, except for very cheap travel deals (my last holiday was £46 for flights and I spent £150 by staying at peoples’ houses for free and not eating in restaurants). I do not buy new clothes, I do not go to the hairdresser, I do not have a television. I have just cancelled standing orders and direct debits that I can’t pay: union fees, Netflix, Spotify, pet insurance, and a £30 payment to my daughter’s trust fund. It makes me angry that, although these things are not luxuries, I still don’t have the money to pay for them. I work overtime when I can, but the more I earn, the more I am taxed, and so my situation does not change.

The way I see it, I am a slave to the system and the only escape would be to live off-grid and self-sufficient. My dream is to have some woodland and build my own house, or live on a canal boat or a caravan to save money. But of course, this dream seems impossible at the moment because there is no money to save up. I have a million business and investment ideas, like buying a small canal boat and renting it out on Airbnb, but I need money to make money!

Basically, Andrzej, I am wondering how those of us who live in poverty can escape from this conundrum? I believe I am very sensible with money, but I still struggle to survive and am one month away from homelessness, always. I’d like to request an article on this topic please!

Thank you for this email. In my life I have been through extremely challenging situations, such as debt or addictions, and I really do understand how people feel in a situation which looks like a classic ‘vicious circle’, seemingly hopeless and jumbled. Personally, I believe that those challenging circumstances are a potential source of our future strength, maturity and creativity.  

Let me start with a general picture, which is the political aspect of Madeleine’s challenge.

There is no doubt that the system in the UK is not yet entirely fair. Why is that?  

Why is there still a huge gap between rich and poor? What’s the reason? Does it exist because of the rich abusing the system and exploiting the poor? Or perhaps because the poor are not willing to take a risk and work hard enough to change their situation? Or maybe just because this is how every system, or most systems, work? 

Do the winners always take it all? Is there a natural tendency for the rich to get richer and the poor to get poorer? 

My answer is that most social systems are extremely complex and there are no simple, straightforward answers. 

The truth, based on observation, is that the ‘winners’ do take it all, but the ‘losers’ (those who have not yet won) can win next time. Nothing is static. Things flow. And almost every system rewards those who try to improve their situations, whether it be their own or that of their fellow citizens.

A  typical social system is designed to reward those who are active and don’t give up. Unless this is a corrupt system, like the one I remember as a kid from my home country, Poland. Thirty years ago we had a kind of mild version of the Soviet economic and social system, the so-called ‘people’s democracy’. By the way, if you believe that the antidote for a conservative government might be ‘a just and progressive system’ modelled on the principles of the left, please be careful what you wish for! There is a rich literature on that topic, including ‘A World Apart: The Journal of a Gulag Survivor’ by Gustaw Herling-Grudziński, and the like.

The truth is that there are a lot of unfair things in UK society, like rental prices or the cost of  higher education. However, there are also a lot of great opportunities in this country, which is why it’s still such a popular destination for people from around the world. I am not saying that life is easy in the UK, but it is at least very interesting. 

When I struggled in the past with money, one day I came to the conclusion that there are only two ways to earn more money: you need to  either do what other people are eager to pay for, or find a way to let them pay for what you do now.

There is no other option, I am afraid. So if your current job doesn’t generate enough money, you will have to either find another job or develop new skills. Nowadays, people on the job market need to be prepared to change their jobs (or even their profession) a couple of times within their careers. 

The best and the simplest way to solve any problem is this: first, describe your current situation or challenge very precisely (point A). Madeleine has done this very well. Then you need to create your ideal situation, your dream life (point B).

She’s done this properly too, however, she might add more details perhaps, and a few more variations of it. What is missing from Madeleine’s email is a plan of how to move from point A to point B. We all need a good plan, a list of steps we need to take to make changes in our lives. I am not saying it’s easy, but it is necessary, it is doable, and it’s probably the only solution for our life challenges, ones which have and will be an integral part of our lives. Henry Ford’s famous saying “Whether you think you can, or you think you can’t – you’re right” seems like a fitting quote for this topic.  

Even in countries like the United Kingdom, it’s risky to count on politicians. I believe that most people have good intentions – and politicians do too, at least from time to time. However, they like to play bigger games, those of national and international power games. They simply don’t care about you specifically, unless you belong to a wider organisation, like a trade union, for example, that is able to negotiate more for their members.

Personally, I like most of the political parties in the UK and European countries. However, I have very eclectic views. I admire the socialist concept of social sensitivity and inclusiveness and, on the other hand, I appreciate the conservative party for their respect for freedoms, especially when it comes to entrepreneurship. 

We live in a better world than our ancestors did a few decades ago – and life is significantly better in comparison to one or two centuries ago. However, there are still a few things that haven’t changed in our lifetimes. 

The most important thing that has not changed is that the only person in the entire universe who can help you live a great, abundant life is you. It’s great to have family and supportive friends. We need them all. It is good to have a fair political system and every one of us should strive for such a system. But again, only you can create the life you want to have.

Saving and budgeting are important. They are an absolute most in personal finance management. However, sometimes the only strategy we can implement is to earn more. By the way, ‘Whether to achieve your financial goal through saving or increasing your earnings’ is the title of one of my newest personal finance management course sessions. 

And if you asked me what was the most important advice I could give you, it would be this: focus the whole of your energy at the moment on earning more and forget about cutting costs. We cannot cut the costs of living till the cows come home; once you have made as many budget cuts as possible, the only option is to increase your income.  

Andrzej Manka